September 2015

Accountant banned for 6 years for engaging in unlicensed financial services

Dimitri Amargianitakis has failed in his attempt to have an ASIC ban of eight years reduced to three by the Administrative Appeals Tribunal (AAT): Dimitri Amargianitakis v Australian Securities and Investments Commission [2015] AATA 720.

The AAT’s decision highlights the risks faced by accountants and other professionals when expanding their business outside its core practice and engaging in entrepreneurial activity in relation to investments without a proper understanding of the regulatory framework, financial services laws, and appropriate authorisations, licensing and compliance.

The background

Over a period of years Mr Amargianitakis offered his accounting clients investments relating to property investment activity undertaken by companies he operated and owned. Despite early successes, things began to sour from around 2006. In 2011 when liquidators were appointed to the two companies, Vista Capital Pty Ltd and Vista Capital Solutions Pty Ltd, Mr Amargianitakis’ clients were owed approximately $32 million.

The ASIC ban

ASIC banned Mr Amargianitakis from providing financial services for eight years on the basis that he had failed to comply with financial services laws and engaged in unlicensed activity, including providing financial services and financial advice without a licence. Mr Amargianitakis appealed, seeking a reduction in the ban to three years and offering an enforceable undertaking at a late stage.

On appeal

Mr Amargianitakis:

conceded a number of ASIC’s arguments that he had contravened or been involved in the companies’ contraventions of various financial services laws. He attempted to explain this by giving evidence that he had no idea at the time of the regulatory requirements and framework;

argued against a finding that he had made ‘recommendations’ and provided his clients with financial advice. He contended that the relevant dealings with his clients “amounted to nothing more than him offering to his clients the opportunity to obtain very good rates of return on their money”, did not involve providing any personal financial advice, and that “his proposals [were] a commercial decision for the clients to either accept or reject”;

submitted that while he previously had no understanding of the regulatory requirements but was now acutely aware of it, and would undertake training; and

accepted that some ban was warranted but submitted this should be three rather than eight years.

ASIC maintained that eight years was appropriate, and in addition to the grounds relied upon in the original banning argued for the first time that Mr Amargianitakis was “not of good fame and character” by reason of his conduct and various breaches.

The AAT’s decision

The AAT rejected Mr Amargianitakis’ assertion that he had not provided financial advice to his clients. The AAT commented that “the clients on the whole were not sophisticated and the Applicant (Mr Amargianitakis) should well have understood their vulnerabilities in matters relating to their finances”, and could not accept that Mr Amargianitakis did not consider he was providing some sort of recommendation. It was also found that Mr Amargianitakis had engaged in misleading and deceptive conduct in his dealings with his clients.

Critically, the AAT also emphasises the seriousness of a lack of understanding of the regulatory environment (emphasis added):

“It is quite remarkable, almost to the point of not being entirely believable, that a man who has been involved in the finance industry for over 25 years and who has been responsible for orchestrating borrowings from clients in excess of $30 million, had not the slightest idea that he was required to hold a financial services licence to carry out the very substantial borrowing activities which he oversaw. During his evidence he was asked a number of times whether he had any idea that there was such a requirement and he consistently answered that he did not.

This is difficult to accept at face value but if it is true, it demonstrates at the very least a lack of any appreciation by the Applicant of the regulatory framework within which he operated. This is a matter of great concern and would, in my mind, be reason enough on its own to impose a ban of some duration.”

However, the AAT rejected ASIC’s assertions that Mr Amargianitakis was not of good fame and character, in particular noting that the offences involved no actual dishonesty and his previous record was unblemished. It also rejected ASIC’s contention that Mr Amargianitakis was likely to breach a financial services law in the future noting that having been through the process of the banning and appeal, the AAT doubted he would have the desire or inclination to do so.

In fixing a banning order the AAT noted that a number of the grounds established specifically involved “a failure by the Applicant to understand the regulatory framework and his obligations within it”. The AAT found there “have been numerous breaches of financial services laws”, the breaches “were serious and in many instances were repeated over a number of years” and the consequences of them to the investing public “were and continue to be significant” with many investors having lost retirement savings at a time when they are unlikely to be able to recoup such losses. In Mr Amargianitakis’ favour the AAT noted he had suffered hardship as a result of the banning order being imposed, however indicated that it was necessary to balance his personal hardship against the public interest. It was further noted that there was no evidence or allegation of actual dishonesty.

The AAT rejected an enforceable undertaking as an appropriate remedy and banned Mr Amargianitakis for six years.

Conclusion

If Mr Amargianitakis’ evidence is accepted, it is sobering to think that he was completely oblivious to the fact that he engaged in repeated and serious contraventions of financial services laws over a period of years, resulting in $32 million of investor funds being lost or at risk.

This case highlights the need for all professionals, particularly accountants, to be aware of the legal and regulatory framework in which they both operate and want to operate. This is of particular importance where their business is also involved or plans to be involved in property investments or entrepreneurial activity beyond its core services. The risks of failing to be aware of the relevant legal and regulatory requirements are serious – there is the potential for professional and reputational damage, banning or professional suspension, and possible compensation claims.

If you are planning to develop a new line of business, you should seek appropriate advice up front and get it right. If you are concerned about your current business activities or want to better understand the complex regulatory framework, talk to someone who knows.

You should also be aware that the ‘accountant’s exemption’ which allows recognised accountants to advise on the establishment of a self-managed superannuation fund ends on 30 June 2016, and you will need a limited licence after this date to undertake those activities.

Mills Oakley Financial Services Team:

Advises on all aspects of financial services laws and compliance, in particular the Australian financial services licensing regime and your obligations under it. If you are uncertain as to whether you need to be licenced or if your licence needs to be varied to suit your changing business needs, we advise that you seek consultation from a member of our team; and

Assists financial services industry participants in relation to regulatory surveillance, investigations and actions, and currently acts for a number of parties who are appealing ASIC bans or navigating an ASIC investigation into their activities.

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